Peggy Pride St. Louis University High School St. Louis, Missouri Peggy Pride teaches Advanced Placement Economics at St. Louis University High School in St. Louis, Mo. Currently she is a member of the AP Economics Test Development Committee. She has developed economic education curriculum and presented at professional development workshops.

Objectives Students learn how a production possibilities curve represents the concept of opportunity cost and limited resources. Students analyze data from the Great Depression and World War II to recognize how differences in the availability and use of resources can change the position of the production possibilities curve. Students evaluate the role of limited resources and the necessity of choice in relationship to economic depression or economic growth. Time Required 2 days Materials Handout 1 — Production Possibilities Curve 1 Handout 2 — Production Possibilities Curve 2 Overhead Transparency 1 — Great Depression, 1929-1933 Overhead Transparency 2 — Mobilization Statistics, World War II (1939-1944)

Overview

The Great Depression and the mobilization planning of World War II are two major events of the 20th century. Macroeconomic statistics related to these events can be used to introduce the production possibilities curve, an economic model that illustrates the impact of scarcity, as in opportunity costs and tradeoffs.

Teaching Activity

Use the first day to introduce basic ideas about the production possibilities curve. Share the information from the Supplemental Lecture Notes, using an overhead or a drawn graph to highlight the positions on the curve, inside and outside the curve, while connecting the graph to the data given. Use Handout 1 to assess the students' understanding of the concept. On the second day, use the overhead transparencies to show statistics from the Great Depression and from mobilization plans for World War II. Discuss the data as presented below:

Great Depression, 1929-33

• A fall in Real GDP meant that economic activity declined and fewer resources were used.
• Real investment includes new tools and machines as well as repair of existing equipment. If real investment declines, we lose some of our productive capacity since tools and machines are no longer useful.
• A decline in commercial and industrial construction meant few new factories or repairs to those facilities.
• The large increase in unemployment meant labor resources were idle and not used. The large decline in payrolls meant consumers did not have money to spend.
• Farmer income falling meant farms went out of production, as well as falling prices for agricultural goods.

Ask: What happened to the 30 million workers who lost their jobs? How many were heads of households? What was the opportunity cost of their loss of income?

• Falling export trade meant the recession (and later the depression) was worldwide. After World War I, the United States adopted an isolationist policy. The Hawley-Smoot Tariff Act of 1930 brought the U.S. tariff to the highest protective level ever.

Would any of these facts signal a movement backward of the production possibilities curve?

Mobilization Statistics World War II, 1939-44

• Recall the factors of production concept. Ask students if entrepreneurship aided in the war effort at all.
• The rising industrial production figure, the new machinery production, and spending by the federal government, all moved the curve outward since new machines and factories increased productive capacity.
• Stress innovative ways to overcome scarcity by recycling and making new discoveries. Discuss how these may have been accomplished in World War II.
• The addition of 5 million women to the labor force enhanced the factor of labor and helped to push potential output outward.
• Adding hours to the work week increased productivity, since average hours only increased to about 37.5 hours. This number of hours would not strain the workforce. If work weeks were too long, productivity would decline.
• There are no figures available for productivity (output per person-hour) for the period, yet stressing the quotation from the War Production Board helps students understand how productivity can rise and cause the production possibilities curve to move outward.
• Consumer goods production increased to keep pace with the growing levels of income, but rationing and price controls had to be implemented to control inflation. This is the opportunity cost of the military production.
• During five years of production, the United States produced 86,338 tanks, 297,000 planes, 17,400,000 guns, 64,500 landing vessels, and thousands of ships, cargo ships, and transports.

Discuss each overhead. Use Handout 2 to assess understanding of the data analysis. Summarize the lesson and review the concepts of efficiency, growth, and opportunity cost.

Ask students to explain the effects on the production possibilities curve from these situations:

• Standardized test scores of high school students decline greatly.
• Unemployment falls from 9 to 6 percent of the labor force.
• Defense spending is reduced to allow government to spend more on healthcare.
• Society decides it wants compact disks rather than new tools for factories.
• A new technique improves the efficiency of extracting copper from ore.
• A maturing of people from the mini baby-boom generation (born 1976-1982) increases the nation’s workforce.

Overview

By using the model of a production possibilities curve, we can see the concepts of scarcity, choice, and opportunity cost represented visually. We see that scarcity forces us to make choices, which means we must pay an opportunity cost. Nations that make good choices and take measures to gain more resources or improve the quality of resources will benefit from efficiency and gain the greatest satisfaction of wants for their citizens.

Economic Concepts Capital resources — Equipment and structures that are used to produce goods and services. Efficient — A point on the production possibilities curve when resources are fully employed. Economic growth — An outward shift of the production possibilities curve caused by an increase in resource quality, supply, or an advance in technology. Human resources — A skilled and educated workforce. Natural resources — Inputs into production that are provided by nature, such as land, river, and mineral deposits. Opportunity cost — The next best alternative that is given up when a choice is made. Production Possibilities Curve — A curve showing the different combinations of two goods or services that can be produced in a full-employment, full-production economy where resources are fixed. Productive efficiency — Production of a good in the least costly way. Real GDP — The production of goods and services valued at constant prices.